China’s anti-graft probe targets domestic enterprises and fugitives

Chinese anti-graft regulator the Central Commission for Discipline Inspection (CCDI) recently released a list of its latest targets in the country’s escalating crackdown on corruption. Among the 26 companies that will now be subject to inspections are domestic entities such as Chinese airlines and railways, the country’s largest aluminium firm, and even the Communist Party’s own media mouthpiece.

The formation and publication of the list is the latest development in President Xi Jinping’s corruption crackdown, in which he declared he would take down tigers and flies – meaning high and low level offenders.

In China, state-owned enterprises (SOEs) enjoy advantages not offered to private enterprises, such as cheaper financing from banks (85 percent of loans issued by Chinese banks in 2009 were for SOEs, as the banks are also state-owned and directed to let credit flow to other state-owned businesses), favouritism from local governments in regards to land sales, and leniency from regulators.

According to The Diplomat, in some industries SOEs are granted a monopoly and private enterprises are not even allowed to participate in the market, especially in sectors related to national security. SOEs also frequently don’t pay market prices for supplies, and leaders of SOEs are appointed by the central government for political reasons rather than because of their business experience.

Together, these advantages make Chinese SOEs more prone to corruption.

In early 2015, Chinese authorities began the first round of disciplinary inspection on centrally-administered SOEs. The CCDI has stated that it intends to inspect all central government SOEs this year, according to the Xinhua News Agency.

In January, the CCDI announced that it would prosecute Zong Xinhua, the former head of China Unicom’s e-commerce and information technology unit. In addition, China Southern Chief Financial Officer Xu Jiebo and three other top executives at the enterprise were investigated for suspected criminal wrongdoing and consequently fired, as reported by Reuters.

According to The Economist, in August 2014 China’s largest SOE PetroChina also had more than 100 officials under investigation for corruption.

Head of the CCDI, Wang Qishan, acknowledged the contributions that SOEs have made to China’s development, but also stated that there were a number of problems that stemmed from holding positions of power within these economic powerhouses. These included graft, nepotism, bribery, selling and buying promotions, and the formation of ‘cliques’. For example, executives from the energy company Shenhua Group were accused of accepting bribes, while officials from China Unicom were found to be colluding with contractors and suppliers.

Perhaps one of the most notable examples of the crackdown thus far has been the sentencing of Zhou Yongkang. Zhou is a former member of the Politburo Standing Committee and a senior leader of the Communist Party, and was known as the ‘godfather of a petroleum clique’ after spending time working for China National Petroleum Corporation (CNPC). Zhou was last month found guilty of bribery, abuse of power and the intentional disclosure of state secrets, and was sentenced to life in prison.

Targeting SOEs is key for the clean-up of the Party, according to Xin Ming of China’s Central Party School.

Zhuang Deshui, deputy head of Peking University’s Clean Government Centre, was quoted by Xinhua as saying, ‘The key to the campaign lies in whether the ties between SOEs and officialdom can be severed and whether graft-busters are brave enough to hit the special interest groups.’

SOE reform is important for pushing forward China’s economic rebalancing, and the executives being questioned or investigated are likely the same executives who would object to any sort of reform. SOE-based interest groups are also hard to take on.

There is also the concern that corruption and the abuse of power within SOEs is a drag on China’s economy, especially as economic growth slows down. With over 150,000 local and national SOEs, there will be a lot of work ahead for Xi Jinping as he seeks to weed out corruption and initiate reforms.

Finding foreign loot

SOEs are not the only target of Xi’s anti-graft probe. Beijing is also undertaking a worldwide hunt for fugitives suspected of hiding abroad with stolen money from China.

According to The Wall Street Journal, Operation Sky Net is a multi-agency initiative that seeks to find corrupt fugitives and recover any money they might have gotten from the state. It is currently targeting 100 corruption suspects, who are mostly former officials. Many of these former officials live in Western, English-speaking countries that lack extradition treaties with China because of concerns about human-rights violations. Due to these concerns, extradition requests are often ignored by countries such as the United States and Canada. However, this could change, as the Asia-Pacific Economic Cooperation (APEC) recently formed the ‘Beijing Declaration on Fighting Corruption’, which aims to improve transnational anti-corruption cooperation.

In the meantime, the United States has shown more willingness to cooperate with China and may even repatriate Zhao Shilan, who is accused of funnelling dirty money from China and falsifying United States visas with her ex-husband – another Interpol fugitive named Qiao Jianjun.

Operation Sky Net follows another Chinese operation to find fugitives, Operation Fox Hunt, which began in July 2014 and which brought 288 suspects from 56 countries back to China for prosecution. However, due to issues in extradition agreements, Beijing was mostly limited to asking officials to turn themselves in in exchange for leniency.

China is planning a meeting for August to discuss the issue of repatriating corrupt officials and returning their assets to China. In addition, Wang Qishan is planning a visit to the United States in September 2015, although it is unclear if this is for a separate issue or if it is associated with the talks.

On 22 May 2015, the CCDI celebrated the capture of the 100th corrupt official ‘with the rank of vice minister or above’. Yu Yuanhui, a former standing committee member of the Beihai City Committee of the Communist Party in Guangxi Zhuang Autonomous Region and Party Secretary of Nanning, was placed under investigation for serious violations of Party discipline and state law.

According to The Diplomat, Yu was responsible for massive land confiscations in Guangxi, which led to the deaths or serious injuries of local people. He allegedly organised police raids on villagers and covered up bloody conflicts when the issues arose in the media or were investigated by Beijing.

Yu was not acting on his own, however, and was carrying out instructions from his superiors. This naturally raised the question of how high up the chain of command must Wang go in order to weed out corruption.

Between the pursuit of fugitives, many of them abroad, and the enormous task of sifting through the thousands of SOEs, it seems that China’s anti-corruption efforts still have a long way to go.

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